Valeura Energy Inc share price, company news, analysis and interviews

Learn about Valeura Energy Inc’s impressive share price performance, recent exploration successes, and high reserve replacement ratio in this exclusive interview.

In an exclusive interview, Valeura Energy Inc. CEO Sean Guest discusses 2023 trading, growth projects, asset resilience, and more. Find out what’s in store for 2024 and how the company plans to generate both resilience and growth.

Valeura Energy Inc (TSX:VLE) is the topic of conversation when Auctus Advisors Co-Founder and Head of Research Stephane Foucard caught up with DirectorsTalk for an exclusive interview.

Q1: First off Stephane, could you just remind of the Valeura Energy story, what’s it all about?

A1: The company’s story is really about maximising the value of material assets in shallow water, offshore Thailand.

You might recall that about a year ago, the company was effectively a cash share, fast forward to today, the company holds about 30 million barrel of 2p reserve and produce over 3,5000 barrels per day of oil.

The assets were really acquired on the cheap, really on the cheap, from a seller who wanted out of oil so the acquisition was very well timed. The seller effectively paid Valeura over $100 million to take on the assets. The assets are highly free cash flow generative and the story is now about delaying decommissioning by adding reserves and by extending production plateau.

As of today the shares are very cheap, they offer a deep value, the net cash in the next 6 months is probably, of course on oil price, higher than the current market cap so it’s quite extraordinary.

Q2: How are the Thai assets performing since they’ve been acquired?

A2: It’s a key part of the story, of course, because the idea is the better the assets performed, the more the decommissioning would be delayed. So far, the assets have performed very very well since the acquisition was announced.

If you look just in 2022, pre-closing, the closing happened early Q1 2023, most of it was in 2022 production has already been replaced by reserve. The commissioning on one of the assets has already been pushed back by a few years.

The current production is already 1% above Q1 in 2023 so you can see good performance since acquisition was announced, good performance in Q1 and lastly, the well they have been drilling recently is actually being drilled quicker than expected.

What it means is that this year’s drilling programme, they might eventually only need one rig rather than two as they initially thought. That could be good news in regard to capex, they may actually for the same results, spend less.

Q3: Given that the delivery has been very good so far, why do you think the share price has been under pressure?

A3: I’ll start by saying I think there is a general sentiment that the entire oil and gas sector is down with oil price, and even more generally, you have cash outflow from the general equity market, so the market is difficult.

There have been more specifics factors for Valeura Energy but I think the results of misconception and even perhaps some confusion. The hope is that many of those, if not all of them, will be addressed in the coming months so quite soon.

The first point is there is some confusion around cash, working capital, cash flow and tax payable because there is a big tax that is being due to be paid in 2023 but for which the company has been basically provided with cash by the seller of the Thai asset. So, I think there is some double counting at the moment in the mind of some investors and I think as those taxes are being paid in Q2 & in Q3, that will resolve itself and people will start seeing the true value of the balance sheet.

The second point is there is a tax restructuring expected to take place by the end of the year and that tax restructuring is quite important because I think it would really reduce the amount of tax the company would have to pay in 2024 by a big amount. We expect to have some confirmation of those tax restructuring by the end of December.

Lastly, there is of course the decommissioning timing, and likewise as the company keeps delivering on production, there will be more confidence that those decommissioning are being pushed back which create additional value.

Valeura Energy Inc (TSX:VLE) Chief Executive Officer Sean Guest caught up with DirectorsTalk for an exclusive interview to discuss the completion of the transformative Gulf of Thailand acquisition, third party reserves assessment and 2023 guidance.

Q1: When we last spoke, you’d just announced a transformative acquisition in the Gulf of Thailand, where you were buying three producing oil fields. Now that you’ve closed the deal, I wonder if you could talk us through your recent update regarding the closing numbers? 

A1: Yes, we announced the deal in early December of buying the three fields from Mubadala Energy, and the effective date at that time was August 31^st and we just closed the deal on March 22^nd, so we had a 7-month interim period there.

During that period, we were very pleased, we saw that the production was averaging at 20,600 barrels a day, and that generated $363 million in revenue, during that period. When we did the deal back in December, we said we expected about $30 million in cash flow pre-tax and that’s really what we’ve seen from these assets.

So, we’ve seen a really good test of the cash flow and the production that we expected from the assets, which really when you brought that to close so when we took over the company on March 22^nd, there was $243 million in cash in the company. When you take into account other assets, payables, also liabilities lie the tax that had to be paid, it was actually a net working capital gain to Valeura Energy, at that time, of about $105 million.

So, we were very pleased with that number, to see it and I think with the analysts I think it’ll beat expectations as well.

Q2: You’ve also announced a third party reserves assessment, what are the numbers telling us, are there any surprises there?

A2: No, it was really in line with what we expected so it came out with the total 2P reserves for the company now of 29.1 million barrels.

Really, the interesting thing when you look at these assets is they’re always showing to have a short reserve life index of approximately 3 years but every year when you do the reserves, the reserves don’t decline.

So, what that’s telling you is you’re continuing to see a reserve replacement ratio of near 100% on the assets. Everyone’s always quite concerned when they look at it and say well it’s a short reserve life and yet every year, for the past 6 years, we can show data that shows that you pretty well have a 100% reserves replacement ratio.

That’s the story we’re really trying to tell with these assets so yes, there’s great production in them but by drilling and more workovers, you’re able to replace those reserves almost 100% each year. That high cash flow that you get from the production just is a benefit to your company that keeps coming and you defer the abandonment.

Q3: A big focus from your announcement yesterday is Valeura Energy’s guidance for 2023, could you talk us through the highlights?

A3: So, it’s quite an active work programme that we’ve got set up for this year. We’re looking at really an average production for the full year of somewhere between 20,000 barrels a day, on the low side, and 22,300 on the upside. Again, that’s all oil that’s priced at about brand pricing.

The operating costs associated with that are between £229 to £240 million, and that gives us about $30 a barrel operating cost which for us we believe is very good in our offshore environment and quite competitive.

Now, the other element to our guidance that we put out is capex. We see the capex for this year is between $180 to $200 million, for these assets that’s at the high end but we are going into quite a heavy work programme. We’re going to be having one rig working for the full year and then we have another rig coming in for about a third of the year just to drill on our Wassana field, which we’ve talked about in the past.

So, it’s a high capex for the year but we see that is the opportunity to deliver a production increase when we look out about a year from now when we’ve brought on a new project on the Nong Yao fields, and we’ve also done the infill drilling in the Wassana field to increase that production.

The capex is not just about maintaining the production, it’s also about looking at growth, and growth in that production and cash flow.